Transcript: Global E-Book Market Report Returns

Recorded at the 2013 Frankfurt Book Fair
For podcast release Monday, October 21, 2013

KENNEALLY: At the Frankfurt Book Fair 2013 with the author of The Global eBook Report: Current Conditions & Future Projections, Rüdiger Wischenbart from Vienna. Welcome back to Beyond the Book.

WISCHENBART: Thank you very much for having me here.

KENNEALLY: Well, it is an update for a previous edition. You’ve done several of these. In fact we’ve chatted with you about them in the past. And so let’s talk about what the current conditions are. The Frankfurt Book Fair is just ongoing as we speak, and very excited about the promise of e-books. What kinds of things are we seeing in the world marketplace?

WISCHENBART: I guess, for the past years, we have seen enormous growth in the U.S. and in the UK. But everywhere else, it was still expectations. Things are going to happen were the main topic in the debates. But now, over the past year, we have seen all across western Europe that e-books have started to emerge, evolve and follow pretty much the growth pattern that had previously been seen in the U.S. and in the UK

So it starts slowly in a curve, and then suddenly it gets real momentum because the devices are there, but perhaps even more important, also, the books are there. All the publishers have started to release all their new titles, at least in fiction, as a routine in all e-book formats. And so suddenly the whole – readers are picking up very quickly and very systematically on these e-books, with the strongest readers coming first. That’s the same story that we see now happening in Germany, in Spain, but also in France, in Italy, a little bit in Scandinavia.

KENNEALLY: Right. For the audience in the U.S. that’s not familiar with some of the very special conditions that prevail in the book market across Europe, fill us in. What were some of the factors holding this back? Why has it taken a four- or five-year lag for things to catch up here in Europe?

WISCHENBART: It’s very simple. Size matters. You have, in the U.S., a very huge integrated marketplace with hundreds of millions of consumers speaking basically one language, English. Spanish was slower. In Europe, you have a very fragmented marketplace, with every country having their own language, with lots of barriers, not trade barriers, but pragmatic barriers, so you would have to wait for German publishers to pick up on German books – and French publishers picking up on French books.

And while the Germans did so a little bit faster than the French, who were talking even down the whole development, suddenly you saw now, for completely different reasons, the momentum going up in Spain, because there you had a huge economic crisis, and e-books are just cheaper than print books. So you have all kinds of factors around which define at what speed and at what rates the e-book market is emerging. But the overall story for western Europe is that now it’s hitting the road, and it’s picking up very fast.

KENNEALLY: So really, it’s been the consumer driving all of this. And I know that, in the case of Germany at least, and I believe in France as well, there are some legal regulations that have had the effect of slowing all this down because of pricing and so forth. Can you talk about those?

WISCHENBART: We have a few factors that hugely influence what e-books are about. One is prices. You have very different strategies across Europe from publishers’ sides on how to approach the pricing issue. For instance, in Germany or in France, publishers really try hard to keep the e-book price next to the level of printed editions and even hardcover editions, so you would have an e-book offered, of a new title, at around $15, $16, $17, which is of course very expensive.

And you have price regulation, at least informally, so that everybody maintains that price level. And at the same time, in other countries like Spain or Italy and in the UK, prices are roughly half of this in the best-selling segment in those titles that people really are crazy about to have. And of course you can imagine that it makes a difference if you buy a book for $8 or $16.

The other thing is, in the value chain, we have what we call value-added tax in Europe, which is a little bit of an equivalent to the sales tax in the U.S. And in most countries, books and a few other materials have a reduced value-added tax. So in Germany, for instance, you buy a book and have only to add 7%. But an e-book is considered not a book, but a license to a piece of software, and that is not subject to the reduced tax, so you have to add not 7% in Germany, but 19%. In the UK, you have zero for books and 20% added on e-books. So that makes pricing also difficult.

And that has been made even more complicated with all the self-publishing coming in, because the self-published authors try to compete on price, of course, and they sell their books – their new titles – at $3.00 – $2.99, $3.99, even $0.99. And so suddenly, in an environment that was used to a very stable pricing and economical framework, suddenly hell got loose.

KENNEALLY: It’s quite remarkable. And you mentioned self-publishing. I think that, in the U.S., self-publishing really helped to accelerate the introduction of e-books because, you know, the authors made things available. There was a tremendous amount of volume immediately. The existing publishers, the legacy publishers, would have gone back to their backlists. It would have taken some time. But the self-publishers came in and filled that vacuum. We’re seeing the same thing then in Europe?

WISCHENBART: We are seeing a similar thing in Europe. One is that self-publishing is very much about genre fiction. And until very recently, until a year ago, self-published books were considered to be less valuable – minor books. And they were just about romance, about ghost stories, fantasy or sci-fi. And suddenly that started to fill a huge niche, which had been much smaller before. But with the consumers seeing all those books listed on Amazon in Germany or France, with their low prices, next to the other books with the high prices, that suddenly changes the picture tremendously.

KENNEALLY: Well, you know, I had a chance to speak with a Finnish publisher, who remarked to me that the e-book marketplace there hasn’t taken off. It hasn’t fulfilled the expectations that the publishers had for it. And he blamed the lack of an e-reader device. He said that reading on a tablet just wasn’t the right equivalent for him and for many of the other consumers. But I wonder if that’s true. What do you think?

WISCHENBART: Well, we have done one chapter exploring what e-books meant for small – really small – markets of a few millions only. And we were focusing on even smaller markets further down the road from Finland – central and eastern Europe.

And in theory, you think e-books are wonderful things for those markets, because no inventory cost, no problem of catering directly to small audiences, communities, etc. But as a matter of fact, it turned out that these small markets have a really hard time to grasp the opportunities from e-books, because the investment for a small publisher, which has only a small audience, is roughly the same in digitizing their lists, in setting up the infrastructure for distribution, but the return on that investment in a small audience is much harder to get. So the catalog is very limited.

And we see many countries – I’m not sure about Finland – but you have a few thousand titles in the catalog for e-books in such a market, at maximum. And consumers from the print side are used to enormous catalogs. Also in Finland, it’s a very strong reading population. So I guess the gap might not be so much about devices, but what you can put onto these devices.

And then you have also the impact – these people are very well educated. They are fluent in English. And suddenly, you have a new competition coming from the English language. And people would buy the Kindle when they are on a holiday in the UK or in Europe, and then they bring it home and discover that the English books are cheaper. They can read them, nevertheless. So suddenly it’s quite a mess.

KENNEALLY: Right. We are speaking right now with Rüdiger Wischenbart, the author of The Global eBook Report: Current Conditions & Future Projections, just published here at the Frankfurt Book Fair on the floor of the fair as we speak. And Rüdiger, that gets us to a point about the competition between the global and the local. What has that meant in Europe? And at some point, I want to promise the audience we will talk about elsewhere than Europe. But specifically in Europe, this war – this conflict, if you will – between global players like an Amazon and the local players themselves?

WISCHENBART: Well, it started in three countries on, at first glance, very different topics. In the UK, a year ago, people discovered that Apple or Amazon would pay very few, very low taxes in the UK, despite of making huge revenues, because they had a construction to pay most of their European taxes in Luxemburg, which has lower taxes than the other countries. Then, in France, a few months later they discovered that, for setting up a logistics center, a warehouse, Amazon had received government subsidies and was again paying very low taxes.

So people said, wait a moment, why do we subsidize those people who are not paying taxes? And then, again a few months later, in Germany, someone discovered that, in a warehouse center of Amazon in Germany, the working conditions were very, very poor, and they had strikes, etc.

And you would assume that’s different stories. No. It’s just one story that you see. In a home-grown book market with local players – family businesses, even publishers being small, medium sized, very often – huge new entities come across and say, we reinvent the business from scratch, and we take on all the roles along the value chain that used to be distributed among other players. And that produced, obviously, a huge clash of interests that emerged and triggered a debate all across Europe on how to balance that impact of the few global players. And here we talk primarily about Amazon and also about Apple, who have the largest market share in e-book distribution.

And now all kinds of initiatives are mushrooming, from the small guys forming by local initiatives to huge groups like major chain bookstores teaming up with telecommunications firms to create their own platforms experimenting with subscription models, experimenting with kind of community-driven platforms and trying to generate size and scope and reach to compete successfully with Amazon.

KENNEALLY: Well, I know your report is really only about current conditions, and you’re making some future projections as well. What’s your projection with regard to the survivability of some of these smaller existing players? What will they need to do? Are there some strategies that they can employ that you’ve been able to identify?

WISCHENBART: I guess what we must expect is something not so different from the U.S. Those who are hit hardest are not the little guys, but those in the middle. The chain bookstores are suffering the most. And ironically, these used to be considered to be the aggressive players just two, three years ago. And they are really hit hardest. We see trouble across chain bookstores. In France, Fnac is restructuring. In Germany, there are two large chains – Thalia, which was restructuring, was almost sold but didn’t find a buyer, and the other one – Weltbild – has difficulties to really revamp itself into a digital player.

On the lower level, the small booksellers discover, with the chains being weakened, that they have lots of space to maneuver with their ability to cater to local audiences – community driven – doing service, doing home delivery with bicycles, which you cannot do on a national scale, but with lots of readings, etc.

So I rather witness a revival of those local structures, and I guess we will see over the next – what we start to witness right now, as of 2013, is an enormous emergence of startups of all kinds – new bookshops, new publishers specializing in digital, new service providers, new all kinds of stuff. And that’s all across these countries.

So my assumption is that we will see further growth of the very big players – the Amazons and Apples – and lots of initiatives to reinvent the business along very ingenious and creative ways and a thinning out on that middle level, where the old powerful chains used to live.

KENNEALLY: Well, let’s take a couple of plane rides. Let’s fly over to South America and Latin America, a market I think you know fairly well. Talk about the situation there as far as the e-book marketplace.

WISCHENBART: Everybody is marveled by Brazil, a huge market, which was on the upswing enormously over several years as an emerging economy. That has slowed down a little bit. But still, in the book sphere, that’s very strong and vibrant.

Why? For two reasons. One – an emerging economy produces a middle class. A middle class wants to educate their children, and they want also to entertain themselves, not just with a videogame, but also by reading books. And the second thing is the government very much is fostering this and spent a lot of money. Some estimates have it that 40% to 50% of all the book market in Brazil is somehow connected to government spending on education, on fostering things all over the place. And we see also, not very surprisingly, how many of the very big players in publishing and in retail had come into Brazil.

Publishers had set up branch offices, started to create joint ventures, etc., primarily with regard to the educational business. And all the big platforms for retail showed up within hours. Kobo, Google and Amazon had opened their stores within one day, really, in December of last year. Apple had come in a few weeks earlier. And they are now competing. For instance, according to the figures that I know, it’s not Amazon who is on top of the show, but Apple. So you see that you have – and you have also partnerships. Kobo is teaming up with a local chain and trying to find alternatives to the few big boys.

KENNEALLY: Well, then let’s zip across the Pacific and zero in on a country of particular interest in the Asian marketplace. Take your pick.

WISCHENBART: Well, China and India – very different, but very exciting. In China – a huge market, very centralized. China has become the number-one buyer in copyrights over the past decade, outmatching everybody else, growing. China is now the second largest book market in the world after the U.S., after having topped both Germany and Japan. And e-books are very small. But Amazon came in just a few months ago, in June, and people told me that they expected in China that the Kindle, as a device, and the platform of Amazon would have a big impact on e-books.

At the same time, we mentioned already that publishers are teaming up with telecommunication companies, and China Mobile said we are going to be the number one. So you will be able to expect a really head-on-head race between Amazon and China Mobile with a consortium of other Chinese players. And behind that, you have a government which is, one hand, controlling content, but in their main interests – when we speak about control and censorship, it’s not about books. With regard to books, their main ambition is to make China competitive and compliant to international standards. So they push their publishing companies to form huge entities to go international, to make joint ventures, acquisitions, etc. They drive their publishing companies to the Shanghai Stock Market, so you see enormous momentum. At that level, it’s going to be digital because everybody has a smart phone, and reading on a screen in China is – with those tiny characters – I’m short-sighted, I have no idea how they handle it, but you see them in the underground reading long texts on their smartphones. And the penetration of cheap, local branded smartphones – Xiaomi is one of those brands – is enormous.

KENNEALLY: So if we flew over to India from there, what would we see? Is it much of a contrast?

WISCHENBART: Completely different picture, because India is not centralized – not only one language, but many languages. You have a huge market of English language, but you also have huge markets in Hindi and in Malayalam, the main language in the south. And what you have – you have some similarities rather with Brazil, because education is so important and probably, I don’t know, 40%, 50%, 60% of the book market is about educational books.

And people are crazy to educate their children and provide them materials. The second thing is we also see a huge expansion of online bookselling. They have a largely predominant local player, Flipkart, who had the possibility to start a few years before Amazon was allowed to come in. And they had a very ingenious system of home delivery of books. All across that huge continent, they would ship the books and then cash in in cash at the consumer, so they found a solution for a very complicated problem.

And we also see that, by now, local authors make the market, and not global authors. So you have a very exciting environment. And of course, for education, digital is leading. And we will see lots of new platforms – gadgets, also homemade gadgets – coming in. There is lots of government support also for this. And we see the international players coming in. And on the publishing side, we have all the big international companies, like Random House and Penguin and Hachette trying to find their approach to those markets. And some, like Penguin, are there for 75 years.

KENNEALLY: A fascinating and comprehensive look at the global e-book marketplace from Rüdiger Wischenbart, who is the author of the just out from Frankfurt Book Fair – The Global eBook Report: Current Conditions and Future Projections. And, you know, listening to you, Rüdiger, I would have to say it’s a very exciting time. If you look in one direction, things look rather grim for some parts of the book business. But if you look in the direction of e-books, its actually quite exciting.

WISCHENBART: Yes. But I guess here also – I’m very optimistic. I guess, in the long run, e-books will be able to reinvent reading on a large scale, a little bit like cell phones have reinvented communication, even in poor areas, because it would have been unaffordable to do that with land lines – too expensive. And e-books can do the same. But the transition is going to be very hard for many. And particularly, it will stiffen the competition between the small and the big boys and between the more peripheral markets and the big central marketplaces.

KENNEALLY: Well, Rüdiger Wischenbart, on the floor of the Frankfurt Book Fair – thanks for joining me today on Beyond the Book.

WISCHENBART: Thank you so much for having me. And enjoy the book fair. You have all those people here.